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APC 24 > Valuation > Flashcards

Valuation Flashcards

1
Q

What are the 5 Methods

A
  • Comparable
  • Investment
  • Profits
  • Depreciated Replacement Cost
  • Residual
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2
Q

When is the Comparable method used

A

The most common method.

The act of comparing the subject property to recent transactions of similar properties in order to determine value.

Reliant on accurate up to date comparable evidence.

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3
Q

When is the Profits method used

A

Used for valuing Trade related property where there is a Profit

Value is dependant on the profitability of the business and its trading potential

E.g. - Hotels, pubs, care homes.

Principle:

  • Annual turnover less costs = Gross Profit
  • Less working expenses = Unadjusted Net Profit
  • Less operators remuneration
    = Adjusted Net Profit / Fair Maintainable Operating Profit

FMOP is then capitalised at an appropriate yield = Capital Value
(Cross checked with Comparable Evidence)

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4
Q

When is the Investment method used

A

Used where there is an income stream such as a RENT

The rent is capitalised at an appropriate Yield to produce a Capital Value.

Conventional Method:
- Used where the rent is market rent - Rack Rent
- Rent x YP in Perp = Capital Value

Term and Reversion:
- Used where the passing rent is below the market rent
- Rent is capitalised until the next review @ YP single rate
- Reversion to Market Rent capitalised in perp

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5
Q

When is the Residual method used

A

Typically used for valuing property or and with Development Potential.

Total Development Cost
-
Developers Profit
=
Site Value

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6
Q

What is a Development Appraisal

A

A calculation to establish the viability / profitability of a proposed development.

Total Development Cot
-
Site Value
=
Profit

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7
Q

When is the DRC method used

A

Used as a method of last resort for specialised properties.
Not suitable for secured lending purposes

Method:
1. Value of land in its existing use
2. Add costs of replacing the building plus fees
less
Discount for depreciation and obsolescence

Have to estimate the amount of depreciation appropriate for physical, functional and economic obsolescence.

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8
Q

What makes a good comparable

A
  • Distance
  • Age
  • Similarities
  • Construction
  • Location
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9
Q

What might affect a properties value

A
  • Planning
  • Access
  • Services
  • Condition
  • Location
  • Features
  • Occupation
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10
Q

What are the contents of the Red Book

A

PS1 - Compliance with standards where a written valuation is provided
PS2 - Ethics, Competency, Objectivity and Disclosures

VPS1 - Terms of Engagement
VPS2 - Inspection
VPS3 - Valuation Report
VPS4 - Basis of Value, Assumptions & Special Assumptions
VPS5 - Valuation Approaches and Methods

VPGA 1 - 10 Valuation Applications

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11
Q

What is the purpose of the Red Book

A

To promote and support high standards in valuation delivery worldwide. The publication details mandatory practices for RICS members undertaking valuation services. It also offers a useful reference resource for valuation users and other stakeholders.

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12
Q

What are the International Valuation Standards

A

The International Valuation Standards (IVS) form the key guidance for valuation professionals globally and underpin consistency, transparency and confidence in valuations.

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13
Q

What is the relevance of 1982 for CGT valuations

A

Capital Gains Tax was ‘rebased’ to 31st March 1982 in The Finance Act 1988 and such rebasing was achieved by supposing any asset held at 31st March 1982 to have been sold and immediately reacquired at its market value on that date.

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14
Q

What valuations are outside the Red Book

A

Marketing Appraisals
Internal Valuations
Insurance

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15
Q

How would you value an AHA

A

Succession Rights:

  • Capitalise the rent In Perpetuity

No Succession Rights:

  • Term and Reversion
    Assume the expected life expectancy of tenant = YP
    Yield - 2%
    PV of £1 per annum = multiplier

Reversion - Market Value x PV£1 @ 2% in x years

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16
Q

What is Yield

A

A measure of the return on investment expressed as a percentage of capital invested.

Income / Price x 100 = Yield

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17
Q

What is YP

A

Years Purchase

The number of years for an investments income to re-pay the initial purchase price

100 / Yield = YP

18
Q

What is Yield based on

A

Yield is based on market evidence

As a general rule - Lower Yield = Lower Risk

Think AHA tenancies - security of tenure = low risk - 1% Yield

19
Q

What yield would you apply to:

FBT
AHA
Commercial Lease - 3 yr term

A

FBT - 3-4%
AHA - 1-2%
Commercial - 10%

20
Q

What is an Assumption

A

An assumption may have to be made to arrive at a value, as where assuming (or is instructed to assume) the most likely case for a matter of fact or circumstance which is not or cannot be known or reasonably ascertained.

-Detail of the Title or presence of Asbestos

21
Q

What is a Special Assumption

A

A special assumption is where the valuer assumes, usually on instruction, a fact or circumstance that is different from those that are verifiable at the date of valuation. The result will be the market value on that special assumption.

  • Valuing the property assuming VP, but is actually let
22
Q

What are the main heading of a valuation report

A

VPS3:
Purpose of valuation
Client
Intended uses
Valuer
Property
Date of valuation
Basis of value
Assumptions
Special assumptions

23
Q

Where would you find the basis of value for a CGT valuation

A

Taxation of Chargeable Gains Act 1992

Section 272 - Market Value

The price which those assets might reasonably be expected to fetch on a sale in the open market.

24
Q

What are the assumptions for a CGT valuation found

A

TCGA 1992

In estimating market value, no reduction shall be made in the estimate on account of the estimate being made on the assumption that the whole of the assets is to be placed on the market at one and the same time.

25
Q

What is the actual name of the Red Book

A

RICS Valuation Global Standards

Effective from 31st January 2022

26
Q

What should you take into consideration when measuring properties

A

RICS Code of Measuring Practice 2015

27
Q

What is PS1

A

Compliance with standards where a written valuation is provided

28
Q

What is PS2

A

Ethics, competency, objectivity and disclosures.

29
Q

What are the valuation approaches

A

Income
Cost
Market

30
Q

What is the definition of Market Value

A

The estimated amount for which an asset should exchange on the valuation date between a willing buyer and a willing seller in an arms length transaction after proper marketing and where the parties had each acted knowledgably, prudently and without compulsion.

31
Q

Explain the principal of a CGT valuation

A

Base Value
-
Acquisition costs / fees..
-
Any reliefs
= Capital Gain

32
Q

What is the income approach

A

An approach that provides an indication of value by converting future cash flows to a single current capital value

33
Q

What is the market approach

A

The approach that provides an indication of value by comparing the subject asset to identical or similar assets for which price information is available.

34
Q

What is the Cost approach

A

AN approach that provides an indication of value using the economic principal that a buyer will pay no more for an asset than the cost to obtain an asset of equal utility, whether by purchase or construction.

35
Q

What are the different methods of measurement

A

GIA
NIA
GEA

36
Q

What are the relevant valuation application in the red book?

A

VPGA2 - Valuation of interests for secured lending

37
Q

Are you aware of any Red Book supplements?

A

RICS Valuation - Global Standards: UK National Supplement

Effective 1st May 2024

38
Q

Explain what VPS 1 is

A

VPS1 - Terms of Engagement

They should convey a clear understanding of the valuation requirements and processes in a way that can be read and understood by someone with now prior knowledge of the subject asset or the valuation process.

They must address the following:

  • Identification and status of the valuer.
  • Identification of the client
  • Identification of other intended users
  • Identification of the asset being valued
  • Valuation currency
  • Purpose of the valuation
  • Basis of value adopted
  • Assumptions and special assumptions
  • Valuation date
  • Format of the report
  • Basis of fees
  • Limitations
39
Q

What is VPS 2

A

Inspections, Investigations and records

Inspections and investigations must always be carried out to the extent necessary to produce a valuation that is professionally adequate for its purpose.

The valuer must take reasonable steps to verify the information relied on.

A proper record must be kept of inspections and investigations in an appropriate business format.

40
Q

What is Agricultural Value

A

APC 24 (11 decks)

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